U.S. Small Business Administration Disaster Assistance Loans

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Included in the recent legislation for economic relief due to COVID-19 is an expansion of the Small Business Administration (“SBA”) Loan Program. The SBA’s Disaster Assistance Loans are low interest loans designed to help small businesses keep up and get up and running again.  Federal disaster assistance as a result of COVID-19 is requested by each state and approved at the federal level. Illinois has received the approval and designation for its small businesses to receive this aid.

There are two types of SBA loan assistance available. Business Disaster Loans of up to $2 million cover repair and replacement of damaged or destroyed real estate, machinery and equipment, inventory and other business assets. Similar to coverage issues with business interruption insurance, these loans will be difficult to qualify for given the non-physical impact of COVID-19.

More relevant to many small businesses are Economic Injury Disaster Loans (“EIDLs”), which will be more thoroughly discussed here.  EIDL’s are available to small businesses to help provide working capital and to pay business expenses. Those eligible can apply for up to $2 million at low interest rates. The interest rate for small businesses is 3.75% and for nonprofit organizations 2.75%. Repayment terms are provided up to 30 years and first year payments are deferred for one year.

Funds from the loans can be used for fixed debts, payroll, accounts payable and any other bills that could have been paid had the COVID-19 pandemic not occurred.

In addition to qualifying as a small business, loan approval will depend on credit history, ability to repay and the business being located in an affected area with losses suffered as a result of COVID-19. Collateral will be required for most loans and real estate is preferred. The SBA has indicated that loans will not be denied solely for lack of collateral, but loan amounts are capped at $25,000 for unsecured loans.  Documents required with the application include most recent Business Federal Income Tax Return, Schedule of Liabilities (SBA Form 2202) and Personal Financial Statement (SBA Form 413). Please keep in mind that additional information may also be requested by the SBA. Such information may include the most recent individual Federal income tax return for applicant, principals and affiliates, year-end profit and loss statement, current profit and loss statement and monthly sales reports.

We are currently assisting several clients in preparing the loan applications and supporting documents, and we would be happy to assist you or anyone you know of that would benefit from an SBAloan.  If your business can qualify for an SBA disaster loan, it likely makes sense to take advantage of this, especially in light of the current economic uncertainty.  Please contact us right away if you would like to begin this process.